KURT GEORG ROCCO RINCK v. VIJAY ESWARAN

HCA1516/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1516 OF 2006

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REASONS  FOR  DECISION

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Introduction

1. On 20 November 2006, I made the following orders in the absence of the plaintiff, Mr Kurt Georg Rocco Rinck :

(1)     In relation to the plaintiff’s summons dated 3 November 2006 to amend the Statement of Claim, I made no order save that the costs of and occasioned by that summons be to the defendant.

(2)     In relation to the defendant’s summons dated 15 September 2006 to strike out the Statement of Claim indorsed on the Writ and to dismiss the action, I acceded to that application and ordered that the Statement of Claim be struck out and the action be dismissed, with costs to the defendant on common fund basis.

(3)     In relation to the costs of the action, pursuant to Order 62, rule 9(4)(b) of the Rules of the High Court, I assessed the defendant’s costs at HK$439,186.50, being 75% of the amount claimed by the plaintiff (HK$585,582.00).

2. At the conclusion of the hearing, I indicated that I would hand down some brief reasons for making the aforesaid orders.  I now set out my reasons.

Background and the applications

3. The plaintiff claimed to be a founder of a group of companies known as the QI Group of companies (“the Group”).  The defendant, on the plaintiff’s own case, was another founder of the Group, and the person who headed and controlled the Group.

4. One of the companies within the Group was QuestNet Limited (“QuestNet”), a company incorporated in the British Virgin Islands.  It was registered in Hong Kong under Part XI of the Companies Ordinance. 

5. The plaintiff’s existing claim, as set out in the Statement of Claim indorsed on the Writ issued on 19 July 2006, was for substantial “dividends” of the Group to which the plaintiff was allegedly entitled, and future loss of earnings and dividends.  He claimed (i) US$15,240,000 for loss of dividends from November 2004 to the date of the writ, (ii) US$92,000,000, being 20% of US$460,000,000 which he alleged had been transferred away from the Group by the defendant between 2002 and 2005, less an amount of US$5,000,000 he had received (he did not specify from whom or when), and (iii) loss of future “dividends” and directors fees at US$1,070,000 per month.

6. The basis of the plaintiff’s claim was not entirely easy to understand.  Reading the Statement of Claim in context, it would appear that the claim was advanced on the basis that the plaintiff was beneficially entitled to 20% of the shares of the Group including QuestNet, although he did not know the status of the legal ownership of “his” shares nor did he possess the share certificates.  However, it was claimed that pursuant to some form of agreement he had with the defendant, the plaintiff allowed the defendant to decide the corporate structure of the Group as well as the persons who would be the shareholders and directors of the Group at all material times.  The plaintiff then claimed that because of certain disputes between himself and the defendant over the activities of the Group, the defendant removed him from the Group and refused to pay him his rightful dividends despite the fact that the Group had made huge profits since QuestNet was set up in November 2004.

7. The defendant responded by applying on 15 September 2006 to strike out the claim under all the grounds under Order 18, rule 19.  By order dated 18 September 2006, the Registrar adjourned the defendant’s summons to be heard by a judge in chambers, with leave to the parties to file affidavit evidence.  Hence the matter came before me on 20 November 2006.

8. In the meantime, on 3 November 2006, the plaintiff issued a summons seeking an unusual order.  The summons sought the amendment of the Writ by joining two other individuals and QuestNet as intended defendants, and the amendment of the Statement of Claim by a fresh Statement of Claim.  The draft fresh Statement of Claim, apparently settled by counsel, did not make any reference to the claim pleaded in the existing Statement of Claim.  Instead, the draft pleading was in the main a derivative action purportedly made on behalf of QuestNet alleging breach of fiduciary duties and/or trust, account of profits and compensation for loss against the individual defendants.  The pleading was curious in that the claim was supposedly brought by the plaintiff “on his own behalf as a director and/or shareholder in [QuestNet], and/or under Section 168BB of the Companies Ordinance for other shareholders [of QuestNet]”.

9. Additionally, there was a claim for conspiracy advanced by the plaintiff personally against the defendant and the proposed individual defendants alleging that they had conspired to injure him by depriving him of his entitlements as a shareholder in profits and dividends of the Group.

Plaintiff’s late affidavit

10. On 10 November 2006, the plaintiff’s solicitors obtained leave of the court to cease acting.  It was not apparent from the court file whether the plaintiff still maintained an address in Hong Kong at which he could be contacted.

11. The plaintiff did not file any affidavit within the time allowed by the Registrar.  On 14 November 2006, the plaintiff, acting in person, sent to the court an affidavit sworn by him on that day before a notary public in Jakarta, Indonesia.  The covering letter from the plaintiff, which did not give his contact details, asked the court to consider the affidavit at the 20 November hearing and undertook to file the original once it was notorised by the Chinese Embassy in Jakarta.  Mr Charles Sussex SC, who appeared with Mr Anson Wong on behalf of the defendant, did not object to my taking into account what was stated in this affidavit.  I therefore took into account the contents of that affidavit in coming to my decisions.

Plaintiff’s summons to amend

12. As stated above, the plaintiff did not attend the hearing.  He had filed no evidence in support of the proposed amendments.  The affidavit dated 14 November 2006 did not advance the matter any further.

13. The derivative claim purportedly advanced in the draft Statement of Claim suffered from an apparent difficulty : the plaintiff, on his own admission, did not know whether he was a shareholder of QuestNet.  In the draft fresh Statement of Claim, it was pleaded that a Cayman Island company and an individual were the registered shareholders of QuestNet.  That being the case, it is highly doubtful (to say the least) whether he had any capacity to bring the derivative action.

14. I also noted that the derivative claim was purportedly made, albeit in the alternative, under section 168BB of the Companies Ordinance.  A statutory derivative action under that section required the leave of the court before it could be commenced : see sections 168BC.  No leave, however, had been sought.  Even if the application to amend was to be treated as the application for leave, no material has been presented before the court in support of such leave.

15. Another consideration I took into account was that two of the proposed additional defendants were resident out of jurisdiction, and leave to serve out would be required.  However, no proper application under Order 11 had been made.

16. In the circumstances, I was unable to give the plaintiff leave to amend.  Nevertheless, since the plaintiff was not present at the hearing, and in order that he would not be prejudiced if he should find it appropriate to bring a suitably framed claim in the future, I proposed to made no order on his summons save as to the costs of and occasioned by the summons, which must be paid by him to the defendant.

Defendant’s summons to strike out

17. I was satisfied that the Statement of Claim as it stood should be struck out, essentially because there was no pleading, nor any evidence to suggest, that QuestNet had at any time declared any dividend to which the plaintiff could assert any entitlement directly or indirectly.  I also considered that the pleaded claim, in so far as it relied on an agreement between the plaintiff and the defendant, was extremely vague, and not supported by any evidence.

18. I also took into account the fact that when faced with the application to strike out, the plaintiff’s response was to seek leave to amend by replacing the Statement of Claim with an entirely different one.  It was, as Mr Sussex submitted, a clear indication that the existing Statement of Claim was considered to be unsustainable.

19. Mr Sussex argued that this action should also be struck out for being an abuse of process.  He argued that this action was part of the plaintiff’s attempts to harass the defendant. 

20. In this connection, he relied on the previous history of proceedings between the plaintiff on the one hand and the defendant and the Group on the other.  In short, the previous history was as follows. 

21. The dispute between the two sides arose in around July 2006, when the plaintiff was allegedly removed by the defendant from the Group.  On 12 July 2006, QuestNet commenced proceedings in HCA1475/2006 against the plaintiff over certain trust monies held by the plaintiff on QuestNet’s behalf and allegedly converted by the plaintiff.

22. On the same day, the plaintiff through his former solicitors demanded payment by the defendant of alleged outstanding dividends due from the Group to him.  The defendant’s then solicitors immediately denied the plaintiff’s claim and asked for particularization of the companies in the Group which had allegedly declared dividends to which the plaintiff claimed entitlement.  This received no response from the plaintiff’s side.

23. On 14 July 2006, QuestNet obtained Mareva relief against the plaintiff restraining him from dealing with the trust monies.  The present action was then commenced by the plaintiff on 19 July 2006.

24. The defendant also relied on evidence that the plaintiff had been publicizing the present action in a misleading way, which had affected his (the defendant’s) reputation.  These included :

(1)     An SMS message sent by the plaintiff on 26 July 2006 to QuestNet’s “networkers” (who were independent representatives engaged in the marketing of QuestNet’s products) alleging various damaging accusations against the defendant and the Group, including an allegation that misleadingly described the present writ as having been issued by the Hong Kong High Court against the defendant.

(2)     A website known as “Network News Agency”, on which the defendant’s photograph was prominently displayed with a caption “WANTED”, with an article which referred to the writ in the present action.

25. I did not put any weight on the SMS message or the website.  As to the SMS, it might have been a misguided but honest expression of the plaintiff’s views over the merits of his claims.  In relation to the website, there is no evidence that the information concerning the writ in this action had come from the plaintiff.  The writ was a public document and the website could have obtained it from a variety of sources.

26. However, I did place considerable weight on the timing of the present action, the plaintiff’s failure to answer the defendant’s challenge as to the basis of his claim for dividends before the issue of the present writ with a specially indorsed Statement of Claim making serious allegations which are not substantiated and which were abandoned very quickly.  In my view, the plaintiff knew full well that the present claim had no merits but he chose to commence it in retaliation against the action against him.  I was satisfied that it was an abuse of this court’s process.

27. I therefore acceded to the defendant’s application to strike out the Statement of Claim and dismiss the action, with costs of the application and the action to the defendant.

Costs

28. In relation to costs, the defendant sought (i) costs on a common fund basis, (ii) certificate for two counsel and (iii) gross sum assessment pursuant to Order 62, rule 9(4)(b).

(i)      Costs on common fund basis

29. I need not recite here the well known principles guiding the court in exercising its jurisdiction to award costs on a scale higher than the normal party and party basis.

30. The application for costs on common fund basis was made on the basis that this action was an abuse of process of the court.  I have already explained why I considered that this action was such an abuse.  I considered that on the facts of this case, it was appropriate for me to order that the plaintiff should pay the defendant’s costs on a common fund basis.

(ii)     Certificate for two counsel

31. Having heard Mr Wong on the question of certificate for two counsel, I considered that this was a case suitable for me to so certify. 

32. I took into account the fact that the claim when advanced was for a very large sum of money, with serious allegations of dissipation of substantial corporate assets made against the defendant. 

33. Moreover, before this action was commenced, the plaintiff’s former solicitors in their letter before action stated that the plaintiff had been advised by named senior counsel.  The draft fresh Statement of Claim was apparently settled by another counsel of considerable seniority.  It was therefore reasonable for the defendant to enlist the assistance of leading counsel for the present hearing.  I was informed that brief to leading and junior counsel were delivered on 9 November 2006, before the defendant was informed that the plaintiff acted in person.

34. Accordingly, I considered that certificate for two counsel was warranted.

(iii)    Gross sum assessment

35. I acceded to Mr Sussex’s application to make a gross sum assessment of the defendant’s costs of the action.  I saw no reason why further time and costs should be incurred to have the defendant’s costs taxed.

36. I was given a schedule of costs incurred by the defendant in this action.  In the absence of any information otherwise, I assumed that the sums stated on it represented 100% of all the costs actually incurred by the defendant’s legal advisers.

37. The schedule set out in broad terms the items of costs claimed.  As for the defendant’s solicitors, there were four fee earners on the case but the schedule did not provide a detailed break down of the time spent by each fee earner.  For example, under “Communication including conferences, telephone calls and letters” there was an item for “Attendance on client” of 21.6 hours, with a total charge of HK$63,224.00.  It was not apparent how those 21.6 hours were incurred.  I was informed that of this 21.6 hours, only 1.5 hour was spent by the handling partner with the highest charging rate.  I had no difficulty in accepting that, but still I was not particularly assisted in relation to the remaining 20 hours.  And in the context of what had occurred so far in this case that amount of time appeared to me to be on the high side.

38. Another item with which I had some concern was the amount of photocopying charges.  The schedule claimed 1,500 pages of photocopying.  At HK$3 per page the sum claimed was HK$4,500.  That might not be a very large sum of money but again I was not satisfied that even on a common fund basis I should allow 1,500 pages of photocopying for this case.

39. Lastly, about 60% of the costs claim were in relation to counsel’s fees.  I was told that Mr Sussex’s brief was HK$200,000 while Mr Wong’s was HK$60,000.  Another HK$120,000 were incurred for perusal of documents, advising and drafting court papers.  While fully recognizing the assistance Mr Sussex and Mr Wong have so helpfully provided me, it seemed to me that even on a common fund basis the plaintiff should not have to bear the entirety of these costs.

40. Looking at the matter in the round, I considered that it would be appropriate for me to assess the defendant’s costs at 75% of the amount claimed.